Strategies to Get Out of Credit Card Debt
It’s never a bad idea to put yourself in a solid financial position. There are many legitimate reasons why you might be in credit card debt: maybe you fell sick or had an unexpected big charge that you had to pay. Regardless what the reason is, getting rid of your debt should be your top financial priority. In order to do this you need to create an action plan with solid strategies to eliminate your debt.
Figure out where you stand
Before you can start actually getting rid of your debt, you need to take stock of your current financial situation. It is imperative that you fully comb through your finances and know exactly where you stand. You might think that you owe $10,000 but in reality you could owe $13,000. If you don’t know exactly how much debt you’re in then you will never hit your target. You must be completely honest with yourself.
Negotiate a lower interest rate
The fastest way to save money on your credit card bills is by getting a lower interest rate. Oftentimes, as long as you have good credit (a score of 730 or higher) and are a long-term customer who makes payments on time, all you need to do is simply call your issuer to get a reduced rate. You may be able to get a percentage point or two shaved off, which, over the course of the year, can save you up to hundreds of dollars. A great tip is to call up a competitor and see if they will offer you a lower rate and see if your company will match the offer.
Tackle one issue at a time
Ask yourself: what short-term financial goal will make me feel like I’m actually making progress on reducing my debt?
If your answer is having one card completely paid off then the first thing you should do is put as much money as you can towards the card with the lowest balance. Ensure that you continue to pay the minimum on your other cards.
If your answer is boosting your credit score then work on tackling the card with the highest utilization rate, which is your balance divided by the card’s limit. “Since your score takes a hit if you use more than 20 percent of your available balance, bringing the utilization rate down just 20 percent could significantly increase your score” (realsimple.com).
If your answer is paying less interest then pay off the card that has the highest interest rate first.
Create a budget and stick to it. Go through your expenses and cut things that are unnecessary. Be realistic, though. You will need to make some sacrifices, but you don’t need to live on ramen. Sometimes, cutting back can be more effective than cutting out completely. If you adjust your lifestyle to be completely different then you will likely be unhappy and less likely to stick to you new budget. A few helpful ways to start cutting back are by bringing lunch to work instead of ordering food, changing your thermostat by a few degrees and lowering your cable plan. When creating a new budget be sure to leave a little wiggle room in case something unexpected pops up.
Sick and tired of the bottom line of your budget? The consider ways to increase your income this year by starting with a larger number on the “top line”. If your boss and job won’t give you a raise, you’ve got to know that the only alternative is to find another job or to start a business on the side.
Getting out of credit card debt can be overwhelming and seem impossible. But with some slight adjustments you can make a dent in your debt sooner than later. For more tips check out this extended list.